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In regards to salaried labour or factory rent, I understand that these are fixed and committed costs, but can they be relevant costs?
If for example, salaried workers, were working at full capacity, and a future contract being considered would require them to be redeployed to that future contract, causing the firm to sacrifice and an incur an opportunity cost on alternative project, would the cost of the salaried labour, then become relevant?
i.e. would we take the relevant proportion of the salary (time apportioned to the length of the project) and calculate the opportunity cost (lost contribution) to get a relevant cost for the labour?
I’m asking because in all the examples I have seen, we’re given ‘direct wages’ and whilst they have been similar scenarios, I thought the term ‘direct wages’ altered the meaning, because direct wages are variable, whereas salary is fixed?
Fixed costs are only relevant if the total increases as a result of doing the new work.
With regard to workers being redeployed on a new contract, then the relevant cost is the contribution lost from whatever work they are currently doing plus the labour cost. This is explained in my free lectures on relevant costing.
The lectures are a complete free course for Paper F5 and cover everything needed to be able to pass the exam well.
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